When multilevel marketing is a pyramid scheme

Welcome to the Hotel California … where, according to the Eagles’ 1976 hit they haven’t had wine since 1969, but they keep pink Champagne on ice.

Huh?

The problem is that Champagne is wine. Sorry to be pedantic, but I’m sure a few of you didn’t know that. After all, some people don’t seem to know much because here we are back in the 1970s with bellbottoms, hip huggers and platform shoes, now considered haute couture, but without a doubt the most unbecoming clothing ever worn by women, almost as bad as skinny jeans on men. So what we have here is an enigma wrapped in a paradox surrounded by overwrought songwriting, replete with metaphors gone wild.

Which brings me to multilevel marketing, or as it is known in the trade, MLM. These types of businesses also use the names Home Based Business, Direct Marketing, Network Marketing, Relationship Marketing, and the more accurate description (for my money, anyway), Pyramid Marketing. But you’ll be hard-pressed to find anybody in the industry who uses the word “pyramid.”

“Yeah, you’re gonna make a fortune just by gettin’ teams of salespeople under you, and teams of salespeople under them, and teams of salespeople under them, and so on and so forth. But this is no pyramid. No siree, Bob! Just take a little sip of this here Kool-Aid and while you’re at it, get your friends and family to take a little sip too and you’ll soon be wearing a smiley face and be-bopping on down the highway paved with bright, shiny gold.”

Unfortunately for MLM businesses, almost everything you hear or read that doesn’t come from within the industry is negative, and generally well-earned. Let’s face it, many of these businesses are nothing more than loosely constructed, fly-by-night schemes to milk all they can from the pump of high hopes and low prospects until the last trickle of rust is all that’s left. And in these economically challenging times, promise and hope are marketable commodities, “Just sign on the dotted line and let’s get this trivial matter of the small deposit of $4,999 for your sales kit out of the way. Remember, you get a nice percentage of each deposit for every guppy, er, prospect you sign up, and another percentage for every sucker, make that associate, they rope, I mean, bring in, and you can see it won’t take long to recoup your money and make tons more.”

MLM companies seem to be proliferating during the current economic crisis, and the more I see, the more I’m convinced most are nothing more than con jobs fleecing desperate people looking for opportunities. Look, not all MLM companies are disreputable and dishonest, but the truth is, most of them are designed to make the people at the top rich. The basic principal is that the top draws from the bottom, and that revenue stream is only as healthy as the organization’s ability to recruit members.

What generally happens, however, is that the folks on the lower levels make little money, and more often than not, end up losing money. It’s really a question of where you are on the pyramid, and the viability of the pyramid’s structure.

There are some simple questions to ask before getting involved in an MLM, but the most basic one is: does the product have value? If so, why isn’t it being sold like all other products using time-tested marketing and merchandising methods? Is the market for this product so competitive or so oversaturated or the product too weak and marginal to survive in an aggressive marketplace? Is the product only a thin veil to hide an exploitative pyramid scheme? Also, you might want to ask if you will make most of your money selling product or by recruiting friends and neighbors.

In spite of all the problems, MLM companies are making money, lots of money. According to Direct Selling News, in 2010, direct-selling companies generated over $125 billion in revenue in 150 countries by 75 million reps. Some of the MLM companies sell legitimate products or services. Avon, Herbalife, Mary Kay and Amway have all been around a long time and many people have earned a great deal of money from them, not to mention a few pink Cadillacs along the way. My mom used to buy Avon products when I was a kid, and my first deodorant was Avon, and I’ve purchased Herbalife vitamins over the years. Additionally, I know several reputable, professional salespeople heavily involved in MLM groups who are happy and making a good living.

The problem is, some of these companies are run pretty much like casinos. Casinos know a few people will win big, but they also know that the vast majority of gamblers will lose, and those losses fund the big winners who help promote the concept to new and naive players, drooling over the grand possibilities. Like playing the slots or blackjack, getting involved in an MLM company can be risky, not to mention the cult-like ambiance of the serenely proselytized whispering in your ear over and over again, you can check-out any time you like, but you can never leave.

RICHARD PLINKE has over 35 years experience in sales, sales management and training in eastern Pennsylvania. He has written and spoken about sales extensively, and has two books scheduled for publication next year. For a humorous look at his real-world, somewhat fractured perspective on the world of selling, go to www.howtoselltheplague.com.